Is Cryptocurrency a Scam?


Is Cryptocurrency a Scam?

Most of the hype surrounding cryptocurrency relates to getting rich quick. It’s doubtful you will get rich at all with cryptocurrency. If you break even, you’ll be lucky. Follow me to see the Devil in the details.

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Is Cryptocurrency a Scam?

Is Cryptocurrency a Scam?Cryptocurrency may be the ideal vehicle to quickly and effortlessly turn your cash into someone else’s. If you buy into the cryptocurrency hysteria, you will probably lose. Anytime you follow the crowd, you are going in the wrong direction. Remember, scammers use confusion to snare their victims.  If you don’t understand it, don’t put your money in it.

Two Faces of Cryptocurrency.

It’s important to understand that cryptocurrency has two parts. The technology that supports it and the snippet of code that is the actual cryptocurrency. Underlying and supporting cryptocurrency is blockchain technology. Blockchain technology is in its infancy and still evolving. However, it offers a means of self-authenticating some transactions.

The self-authenticating aspect of the technology may have a revolutionary impact on the internet. Much of the praise you hear in the media about cryptocurrency is really about the blockchain technology, not about the crypto itself. This article is about cryptocurrency, the snippet of code, and not the blockchain technology that supports it.

Ultimate Currency?

Cryptocurrency is presented as a currency that bypasses banks and is said to liberate us all from the throes of centralized banking. The fans of cryptocurrency praise it as the ultimate currency of free people, but no government in the world recognizes cryptocurrency as a legitimate currency. It’s too volatile to serve as currency and you can’t buy anything with it.

Is Cryptocurrency a Scam?
It’s just a snippet of code

The truth is, cryptocurrency is not currency and it is not an investment. Cryptocurrency has no intrinsic value. Nothing backs it and it serves no purpose that can’t be better served by genuine currency.

We live in the Information Age. Unfortunately, the information we receive is often intentionally misleading and opposing powers assault us with conflicting information. It is more accurate to say we live in the age of Information Wars.

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Most of what we hear through the media is designed to influence our behavior and thoughts. It is essential to understand the role of the media in fueling the cryptocurrency hysteria. The only value cryptocurrency has is the value the media gives it.

What is Cryptocurrency?

Cryptocurrency is nothing more than a snippet of digital code. Unlike gold, real estate, commodities and corporate stock, cryptocurrencies have no underlying value. The market for cryptocurrencies is artificial.

With real assets like gold, real estate, commodities and corporate stock, you can mathematically determine their value based on fundamentals and market demand. How do you determine the value of a digital code snippet?

Cryptocurrency is not a currency.

Contrary to popular belief, cryptocurrency is not a currency. No country in the world accepts cryptocurrency as a currency. No major financial institution accepts cryptocurrency either. Since its inception, financial institutions have actively avoided cryptocurrency.

To make matters worse for cryptocurrencies, you cannot directly buy anything with it. The rare business that appears to accept cryptocurrency is actually using a third party to exchange cryptocurrency for real currency, typically either dollars or Euros. The purchase transaction is done in the accepted currency of that country, NOT with cryptocurrency.

Using cryptocurrency to buy stuff makes an otherwise simple transaction unbelievably complicated. Why would anyone want to do that?

Cryptocurrency Has No Intrinsic Value.

Is Massive Online Paydays a Scam? Intrinsic value is the value inherently contained in the asset. That value can be determined by how well it solves a fundamental problem.  If you found a hundred-dollar bill on the sidewalk you would know it’s valuable. You don’t need anyone to tell you.

During a natural disaster, food and water will have high intrinsic value.

Gold has intrinsic value because it is naturally dazzling, has multiple industrial applications and has historically served as a store of wealth. The US Dollar has intrinsic value because it has the backing of the United States Government. Also, the US dollar is the only currency you can use to pay your taxes in the United States.

Cigarettes have intrinsic value in prison and under many other circumstances as well. They can be traded for goods or smoked.

In contrast to real assets that have genuine intrinsic value, cryptocurrency does not solve anything. It’s just a snippet of digital code. Its value is based only on media hype. Because the value of cryptocurrency is determined by the buzz in the media, the ‘Theory of the Greater Fool’ drives the cryptocurrency market.

Theory of the Greater Fool.

The Theory of the Greater Fool comes into play when the price of an asset is NOT established by its intrinsic value. Instead, the price is determined by the irrational expectation of market participants. In these kinds of markets, a buyer will purchase an asset for a foolishly high price because they expect they can sell it to a greater fool at still a higher price.”(Source)

If you want to make money buying and selling cryptocurrency, you must find someone who will pay a higher price than you paid. It may be impossible to find a greater fool if you cannot influence the price.

Is Cryptocurrency a Ponzi Scheme?

“Cryptocurrency prices have shot up, not because of underlying value but because of misinformation, concentrated market power, hoarding, opaque and unregulated exchanges, insufficient trade reporting, elevated marketing hype and greater opportunities for market manipulation.” Mark T. Williams, Former Federal Reserve Bank Examiner, as quoted in ‘Bitcon.’

ScamAvenger Girl giving thumbs downCareful study reveals that most cryptocurrencies are owned by a very small group of people. Jeffrey Robinson, in his book “Bitcon,” refers to this select group of cryptocurrency owners at the “aristocracy.”

The more media buzz the cryptocurrency aristocracy can generate about cryptocurrency, the higher and faster the price rises as investors clamor to buy, buy, buy. It’s a scammer’s paradise.

The Cryptocurrency Pump and Dump.

Cryptocurrency is a high-tech, super streamlined variation of Charles Ponzi’s original scheme. Ponzi’s scheme revolved around him as the central figure. Under the pretense of investing people’s money and paying back a high return, Ponzi actually just took people’s money. To create the illusion of paying returns, he gave the original investors a fraction of the money he took from new investors.

Ponzi used real money. Cryptocurrencies use snippets of code and leverage the internet to capture a global market. Plus, they add a critical twist, the ‘Pump and Dump.’

A single cryptocurrency aristocrat can initiate the pump and dump. The wealth generated by this strategy can be staggering.

Here’s how the crypto pump and dump works; the cryptocurrency aristocrat creates media buzz-generating irrational exuberance for the crypto of choice. Hysterical new investors rush to buy the chosen crypto, pumping the price higher and higher. The aristocrat dumps his crypto on the new investors at the higher price.

The crypto aristocrat then lets the media buzz cool. The price naturally falls, because there is no intrinsic value in cryptocurrency to keep the price stable. When the price has fallen enough, the aristocrat buys back his crypto at the much lower price. The aristocrat can repeat the pump and dump for as long as people respond to the media hype.

Because the crypto aristocracy controls the perceived value of cryptocurrencies, they can create wealth out of nothing. The small investor cannot influence the cryptocurrency market. The small investor can only react to the market controlled by others. I’m convinced that the pump and dump scenario is the reason cryptocurrencies were created. Cryptocurrencies give a few people the unimaginable power to create wealth on demand.

Why Cryptocurrency Will Fail.

Any nation must control its economy. Years, perhaps centuries, of political power, laws, bureaucracies, and contracts have evolved to assure governmental control over all trade within a nation’s borders and between nations.

Control over the economy is made absolute by a monopoly of force carried out by the police and military. Cryptocurrency, a snippet of digital code without any intrinsic value, cannot compete. If by chance, a cryptocurrency ever threatens the status quo, it will be destroyed.

I imagine that long before there is a showdown with governmental agencies, cryptocurrencies will die of disinterest. Eventually, the masses will recognize the old pump and dump scheme and refuse to play. That’s when cryptocurrency will die. It will die because it’s just a snippet of digital code with no intrinsic value. It serves no constructive purpose and nothing backs it.

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If you found this article helpful or have experience with cryptocurrency, please leave a comment below. Thank you.

17 thoughts on “Is Cryptocurrency a Scam?

  1. Hi Gary
    I found this article very interesting because I had been toying with the idea of investing in cryptocurrency. As you pointed out there is no intrinsic value in it. So your post has led me to the conclusion that it is too speculative – less of an investment and more of a lottery. So thanks for your informative post and as they say on Dragons Den -“I’m out”.

    1. Hi, Hilary!

      Indeed crypto is too speculative. I’m pleased you found value in my article. I can’t sleep at night if I put money into something I don’t understand. Cryptocurrencies have a lot of mystery and I don’t like that either. Recently, the SEC published their stance on crypto and said that the cryptocurrency markets were a mess and not regulated. 

      As you mentioned, making money with crypto will depend on luck. That’s no way to make money.

      Thanks for stopping by,

      Gary

  2. I completely agree with the idea that cryptocurrency is not the best way to be making money right now! There is such a high buzz about it right now, but if you research people who are actually good at making money, you will see that they don’t recommend it.
    For example, I love Tony Robbins and how he goes about creating wealth while being “unshakable”. He always says that your money should be working for themselves, but he also says that cryptocurrency is super unstable and you might lose more than you are comfortable with.
    Anyway, thanks for such a reassuring post.

  3. Hi Garry,
    I was watching a Reuter’s newscast the other day about crypto currencies. I did miss the first couple of minutes of the cast, but in it they were talking about a diamond group (I believe it was Debeers) creating and backing a crypto currency of their own with diamond.

    The newscast went on to say that it would be a very slow go to make the decision, for all the elder members of the company would have to be trained on crypto currencies, such as what they are, how the are used and created, and what the future may bring for this type of currency.

    Reading your post on how cryptos have no intrinsic value, how would something like a crypto backed by a diamond business change that, or even legitimize crypto coins?

    TTFN
    Frank

    1. Hi, Frank!

      Thanks for bringing this to my attention. I think it is hilarious that De Beers, who created the entire romantic myth about diamonds so they can sell their pretty rocks for outrageous amounts of money, is also entering the crypto arena. Without a hundred years of De Beers marketing and hype, diamonds would sell for far less and only have value for industrial uses.

      Regardless of what is supposed to be backing a crypto, I still would not recommend it as an investment. Several very large problems with crypto are that they are unregulated, they are unstable,and they are in opposition to nation-state backed currencies.

      A quick internet search found an article about De Beers and crypto. In the article, I did not find mention that Debeers is creating their own crypto. What I found was that De Beers is using the blockchain platform to track all diamonds they market. Still, they have the money to make crypto anything they want it to be. It’s their style to make money on nothing.

      Thanks for stopping by,

      Gary

  4. I know very little about Bitcoin or Crytocurrency. I do hear a lot about it, but no matter what people say it doesn’t make any sense to me. Like you say, I don’t think it is a currency. I don’t like to hold some thing that worth 100 today but 0 tomorrow. That is how I feel about this Crytocurrency. I want to own something with value, like a business online as you discribes.

    1. Hi, quang T nguyen!

      I agree. We are being sold bitcoin and cryptocurrency. There is no value in it. The people who control bitcoin and the other so-called cryptocurrencies are making money because they determine the price. And, the price is completely unrelated to the intrinsic value.

      Thanks for stopping by,

      Gary

  5. Great review. I have been skeptical about Bitcoin from its inception. I don’t think I have a lot to say negatively about the article. It was very well written and provided plenty of information on the subject.
    The graphics worked.
    Are there any crypto currencies out there that are worth looking at or should we stay away from them all?

    1. Hi, Curtis!

      The problem with all cryptocurrencies is that they have no intrinsic value. This makes it impossible to determine what to pay for them. Like a painting, you can say it’s worth whatever you can get someone to pay for it. However, that is no way to invest.

      If you cannot determine the value of an asset, there is no way to know if you are buying it below market price or above market price. Savvy investors determine their profit when they buy an asset below market value. You can’t do that with cryptos. In other words, when you buy crypto you are speculating and hoping you can sell it later at a profit. That’s a lousy way to try to make money and only works if you get lucky.

      Thanks for stopping by,

      Gary

  6. This is a really good article for all investors to read. I know people who have made a ton of money trading Bitcoin, before it crashed. I convinced my new son-in-law to get out just before it dropped back down drastically.
    I do think the blockchain technology has some validity for the future. We shall see.

    1. Hi, Curtis!

      I agree. The blockchain technology is promising. However, investing in cryptocurrencies is speculation at best. Most people who made money with it were lucky. I prefer to invest in assets with a known market value I can determine independently. The price of cryptos is driven by hype so you can never be sure if you’re paying a reasonable amount for it or not. And, you can never be sure if you can sell it for a profit.

      Thanks for stopping by,
      Gary

  7. Hi Gary

    I agree that most crptocurrencies are just jumping on the get rich quick bandwagon and people need to fully understand what they are getting into before investing. Its definitely not a money multiplier machine.

    However there is great potential with the blockchain technology and what this may mean for the new way in which we deal with money. I do think there is value in holding onto well backed cryptocurrencies like Bitcoin and Etherium.

    Would you say that they are all bad?

    1. Hi, SJ!

      From what I’ve read, it does appear that the blockchain technology is valuable and will impact the internet for generations. It is still evolving however and I don’t see how it will ever replace a ledger and central authority for all things. 

      I would not use the word ‘bad’ to describe cryptocurrencies, although I doubt we will learn the full truth about them in our lifetime. Investing in crypto is risky because none of them have intrinsic value which is to say the intrinsic value is zero.

      For investors there are much better investments available. Buying crypto is really not investing. It’s speculating. When you buy crypto you are guessing and hoping the price moves in your favor. Because they have no intrinsic value there is no way to know if you have a reasonable chance of making a profit or not.

      Thanks for stopping by,

      Gary

  8. Thanks for a great primer on cryptocurrencies. Personally, I have always been intrigued with all the hype surrounding it and had almost started believing that cryptos are the harbinger of the things to come in the way we buy or exchange value. Without actually bothering to find out what the whole deal was about I thought cryptocurrencies had actually arrived. This article has given the needed jolt to yank me back to reality. Thanks again! I’m be bookmarking this.

    1. Hi, Sukumar Thingom!

      I’m surprised that some of the popular financial gurus have jumped on the crypto bandwagon. I suspect they are rewarded for doing so. I also wonder if we are being conditioned to accepted worthless digitized currency as something of value. It will be interesting to see how this unfolds.

      Thanks for stopping by,

      Gary

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